Peter D. Wysocki

Earnings Management and Investor Protection: An International Comparison

This paper examines systematic differences in earnings management across 31 countries. We propose an explanation for these differences based on the notion that insiders, in an attempt to protect their private control benefits, use earnings management to conceal firm performance from outsiders. Thus, earnings management is expected to decrease in investor protection because strong protection limits insiders’ ability to acquire private control benefits, which reduces their incentives to mask firm performance. Our findings are consistent with this prediction and suggest an endogenous link between corporate governance and the quality of reported earnings.

New Institutional Accounting and IFRS

This paper reviews recent advances from the institutional economics and accounting literature to help build a nascent framework for ‘new institutional accounting’ (NIA) research. The framework has five basic elements: (i) institutional structure (formal vs. informal); (ii) level of analysis (macro institutions vs. micro organisations); (iii) causation (exogenous vs. endogenous institutions); (iv) interdependencies (complementarities); and (v) efficient vs. inefficient outcomes. I apply the framework to help provide insights into the determinants and outcomes of accounting institutions (including IFRS) and non-accounting institutions observed around the world. I conclude with a discussion of opportunities and directions for future research on ‘new institutional accounting’.

Cross-Sectional Determinants of Information Quality Proxies and Cost of Capital Measures

This paper examines the source of the documented empirical link between measures of “accruals quality” and a firm’s cost of capital. First, we argue that when regressions include accruals quality and operating volatility as determinants, these highly correlated measures capture different underlying constructs. Second, we find that in such regressions, the accruals quality measure displays inconsistent associations, while operating volatility variables display robust associations, with various cost of capital measures. Third, we provide research design suggestions to disentangle the effect of accruals quality from operating volatility, and we show how this method leads to less noisy coefficient estimates. These findings should be useful in designing empirical tests of the hypothesized associations involving accruals quality, operating volatility, and cost of capital.

The Usefulness of Academic Research in Understanding the Effects of Accounting Standards

This paper provides an overview of why, and how, academic research can assist regulators and standard setters in evaluating ex ante and ex post the effects of standardization and regulation of corporate financial reporting and disclosure. We argue that academic research is a valuable and often underutilized resource that can help standard setters and policymakers understand the possible effects of accounting standards and regulations. We give an overview of approaches that can, and are, used for this objective and provide selected examples to illustrate how academic research can inform standard setters and regulators.